Lenders Gain Efficiencies with Enhanced Servicing-Released Platform
By Jeff Bounds | June 21, 2016
Recent improvements to Fannie Mae’s committing system for whole loans have made it faster and easier for lenders to sell loans on a servicing released basis to Fannie Mae.
Fannie Mae’s Pricing & Execution – Whole Loan™ (PE – Whole Loan) application allows lenders to access mandatory or best efforts loan pricing along with a servicing retained or released sale option. And, when they choose the servicing released sale, lenders are funded for both the loan and the servicing rights at the same time—typically within 48 hours of good delivery to Fannie Mae.
Under typical servicing released (or “co-issue”) transactions, lenders have a separate settlement process and timeline related to the sale of the servicing rights that is different from the loan funding transaction. Lenders may often have to wait as long as 45 days to get paid for the servicing rights by the acquiring servicing partner.
To simplify the process, Fannie Mae integrated its Servicing Execution Tool™ (SET™) into the PE – Whole Loan platform. Fannie Mae has since made additional enhancements to the platform. The SET option provides lenders a servicing released execution solution on their whole loan commitments to Fannie Mae. As a result, lenders now have unprecedented transparency into the servicing values their loans can yield in the secondary market.
This makes it easy for lenders to compare the all-in price on a given loan with servicing rights included and without. “It’s very efficient that way,” says Douglas White, Fannie Mae’s vice president – capital markets.
Getting Top Dollar
Fannie Mae has also introduced expanded pricing grids and enhanced execution options for the PE – Whole Loan platform to provide lenders greater loan pricing flexibility and certainty, according to White.
“We have combined multiple committing platforms into one simple platform,” he says. “The overall benefit of our system is it helps our clients hedge their mortgage pipeline risk and efficiently sell loans to Fannie Mae. They can manage costs and receive transparency in pricing and overall execution.”
Responding to the Market
Fannie Mae made the improvements to the PE – Whole Loan platform to better serve its customers, according to White.
During the past five years, commercial banks have reduced their holdings of mortgage servicing rights to help cut back on attendant regulatory and financial risks, White says. “As a result, the co-issue servicing transfer segment of the market has grown significantly,” he explains.
Servicing loans is a capital-intensive proposition. This means that companies in the industry may not achieve profitability until they build large enough servicing portfolios.
That presents an issue for small and medium-sized lenders, many of which don’t have large enough servicing portfolios. Or don’t originate the minimum loan volume that many servicing buyers require under typical co-issue arrangements.
To simplify and streamline lenders’ efforts to secure a co-issue outlet, Fannie Mae has created a standard Mortgage Loan Servicing Purchase and Sale Agreement for participating SET sellers and servicers.
Previously, lenders were required to negotiate and execute separate contracts with each co-issue servicing partner. With a number of participating servicers in the SET solution, sellers are offered the potential for the best execution available on their servicing rights sales.
The enhancements to the PE – Whole Loan platform have made an impression on Julie Messina, vice president and secondary marketing manager at CNN Mortgage, a home lender based in Scottsdale, AZ, with more than $7 million in assets.
“It’s a big improvement over the prior version,” she says. “The prior version wasn’t bad, but Fannie Mae has moved into the future with this technology. Every time I jump on, it seems there’s something new happening.”
Using the new PE – Whole Loan platform allows CNN Mortgage to handle its secondary market business more efficiently, Messina says.
“It doesn’t take as many people,” she notes. “We will be able to sell closed loans with fewer moving parts than we have in the past.”
Like many lenders, CNN Mortgage retains servicing rights on some of its loans, while selling the servicing rights on others.
“We want to be able to keep our customers and retain servicing when we can, but SET gives us another liquidity option,” Messina says. “We’re in gradual growth mode. We’re a family-owned company, and we want to be around for a long time.”
Jeff Bounds is a freelance writer based in Dallas. He has been writing about financial topics since the early 1990s.